Western Australia has recently brought itself in line with the rest of Australia by passing laws to allow separating de facto couples to split their superannuation benefits. Western Australia has recently brought itself in line with the rest of Australia by passing laws to allow separating de facto couples to split their superannuation benefits. 

There are an estimated 200,000 Western Australians in de-facto relationships. While these new laws can provide some protection in the event of a breakdown, it is still important to consider that when it comes to your super, it can become quite a complex matter. This complexity can be magnified if you are in a Self-Managed Super Fund (SMSF).

Here are some considerations of what happens to your super and your ongoing membership of the SMSF in the event of a split. 

Superannuation Dealings

Superannuation monies (whether in accumulation or pension) have been classed as “property” for divorce purposes since 2002. This means that in the event of a split, your total super balances will count towards the matrimonial asset pool, and your superannuation savings itself can be split. 

The split of your superannuation could be amicably agreed to by the members of the couple, or it could be dependent on the Family Law Court proceedings. There are three main considerations when dealing with a super split. 

  • The amount to be split could be a percentage or an agreed figure. The split could take effect immediately or could be flagged to take effect at a specific date in the future. Flagging may be more likely to occur where the superannuation interest can’t be easily split right away or can’t be valued until some future point in time. E.g. There might be a term deposit or an illiquid investment that cannot be sold easily in the pool. 
  • You cannot choose the components of what is split. For example, if a person’s super comprises $250,000 tax-free components and $250,000 taxable components (50/50 split) and it is determined that $300,000 will be transferred to a receiving spouse, the $300,000 will be comprised of $150,000 each of tax-free and taxable components – retaining the 50/50 ratio. The tax-free components in your super fund could have benefits for you if you draw an income stream before age 60 or if your balance is paid to a non-dependant in the event of death. 
  • The split occurs in proportion to your preservation status. Using the example above, if the splitting member had access to all their super (e.g., being in retirement) and the receiving spouse wasn’t yet able to access their own super, when the receiving spouse receives the $300,000, they will have access to it.  

SMSFs – Complexities 

While SMSFs are still covered under the same superannuation laws outlined above, it is important to note that members of an SMSF are also trustees. This means that there are ongoing trustee obligations and compliance requirements that still need to be met – even in the event of separation. Couples that are separating and have an SMSF need to decide whether they want to remain in that fund, open a new SMSF or move to an alternative super fund. 

The answer to this often comes down to how amicable the split is with your former partner. For example, if you are separating and on amicable terms, you could choose to stay in the fund with the other fund members. There may also be certain assets in the fund (such as quality commercial property) that both parties could decide to keep, and therefore would require separating members to stay in the fund. If the split is not amicable, these assets would likely need to be sold down for one party to exit the SMSF. 

Protections for your Superannuation

  • Put in place a superannuation agreement that details how your superannuation will be split in the event of a future relationship breakdown. This could be arranged prior to marriage to ensure openness and transparency in the relationship when it comes to superannuation matters. 
  • Seek relevant legal, financial, and accounting advice to ensure your affairs are appropriately managed. 

For more information

If you require further information on how divorce may affect your self-managed super fund,  please contact your local RSM office

Note: past performance is not an indicator of future results.

This article has been prepared by RSM Financial Services Australia Pty Ltd ABN 22 009 176 354, AFS Licence No. 238282.

As everyone's circumstances are different and this article doesn't take into account your personal situation, it is important that you consider the above in light of your financial situation, needs and objectives, and seek financial advice before implementing a strategy.

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